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The 7 - Current Events & Politics - Economics Question Register and log in to post!
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#1 Posted on 12.8.05 1450.24
Reposted on: 12.8.12 1450.29
Before asking, can I please beg that this doesn't turn into Republicans are Evil/Democrats are Evil.
Now, my question: While the government has been paying attention to such important things as steroids and burning the flag, a little matter called oil prices seems to have gone unnoticed. My math might be slightly off, but with oil at just under $67 bucks a barrel, the price of oil on the futures market has increased by approximately 40% in the past few months(and it only seems like it will keep rising), where as not that long ago the thought of $40 bucks a barrel seemed ridiculously high. The paranoid part of me sees this, remembers the stock market at the end of August/beginning of September of '01 and thinks someone knows something, but I'm paranoid so that's just me. However, anyone with an IQ in positive numbers can somehow comprehend that oil drives the economy. With that: How can there not be late 1970's-ish 20% plus inflation by the Holiday Season, as the higher priced oil enters the marketplace in the fall? If you can get your credit cards onto 0% balance transfer rates, that type of inflation could help get you out of debt rapidly. Other than that though, it cripples the economy. Maybe I'm overlooking something, but is there anyway that inflation doesn't skyrocket in the next few months?
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Big Brother
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#2 Posted on 12.8.05 1528.27
Reposted on: 12.8.12 1528.32
If you ask me, those Republicans and/or Democrats are EVIL.

(image removed)
Van Ness Ave. Chevron, San Francisco, Thursday (8/11/05 - Photo by AP photographer Eric Risberg)

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#3 Posted on 12.8.05 1533.07
Reposted on: 12.8.12 1533.14
First, a little historical backgroundin the late 1970s, oil prices rose by over 120% in less than a year, and in the early 1970s, oil prices rose by around 300% in less than a year, so a 40% increase is not nearly as dramatic as the earlier episodes. Also, we are much more efficient with energy now, so price spikes are not nearly as ruinous as before. And, energy is less of a driver on the economy today. Currently, all forms of energy prices (gas prices + utilities prices) are around 8% of the CPI.

Second, inflation is primarily a monetary phenomenon, meaning that it is driven by the supply and demand for money. And, inflation is an increase in absolute prices. Energy prices are obviously driven by the market for that one commodity, and therefore energy price fluctuations are changes in relative prices, so they do not have a direct impact on inflation.

As far as judging the trajectory of inflation, the most important factor is the reaction/behavior of monetary policy (which determines money supply). So, the Feds tightening of monetary policy is working to stem inflation, even in the face of rising oil prices. This will continue and will continue to keep inflation down. (cue Deneice Williams with 'Let's Hear it for the Fed')

Another factor is that our economy is quite competitive, which lessens the indirect effects of higher energy prices. Businesses do not have the ability to pass higher energy prices on to customers, so prices do not change as energy prices rise. The increase in energy prices works to decrease profits, not increase prices. The obvious example is air fare. High fuel costs are absolutely killing the large airlines, but fares continue to be low because the companies cant pass on higher prices to consumers. Another example is retail prices (such as Wal Mart).

EDIT: To follow up on CRZ's reply...if all the people who complained began to drive less (like they threaten), then gas prices will decline (all else equal, of course!) It's all about supply and demand.

(edited by Corajudo on 12.8.05 1536)
Eddie Famous
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#4 Posted on 12.8.05 1622.06
Reposted on: 12.8.12 1622.10
Ha. One of the California gas stations has regular now at over 4 bucks...seen on CBS' early morning news.
Brian P. Dermody
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#5 Posted on 12.8.05 1835.28
Reposted on: 12.8.12 1836.58
I'd just like to add at this point how deeply in love I am with the New York City subway system. Even though I work nights and the construction on the L line means I have to walk an extra stop home or crowd on a shuttle bus.
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